Message Font: Serif | Sans-Serif
No. of Recommendations: 14
Although I think that stock splits are rather inconsequential in the grand scheme of things, there is no doubt in my mind that they are a good thing. Stock splits are more psychological than anything. Many companies want their stock to trade within a certain range. For JNJ, that range is normally between $50 and $100 a share. A company will often not split its stock unless it feels that the post-split price will be able to stay in the preferred range. A company that split's its stock is saying...
1. Management is confident about the future,
2. The company does not think that its shares are overvalued, and
3. The company feels that its stock will not go down substantially after the split.

A couple of examples that I have recently seen:
1. I am a shareholder of The Coca-Cola Company (KO). In the summer of 1998, shares touched $89 a share. Since KO normally splits its shares at around $80 a share, many people on the boards were wondering if a stock split would ever come. Well, so far it hasn't. Two years later, KO had fallen to $42 a share, although it has recently bounced back to $60. Why didn't KO split its shares? They saw that their shares were overvalued and they probably saw tough times ahead. KO also didn't want its shares to trade in the 20's.
2. I am also a shareholder in Gateway (GTW). Last November (1999), GTW shares traded as high as $81 a share. Since GTW normally split shares around $70-$80, many shareholders expected a stock split. One year later, GTW trades at $17 a share. Oh, and by the way, Gateway DID NOT split its shares. If they had, we would have a stock trading in the single-digits, something that few large companies want. Why didn't GTW split its shares? The company, just like KO, probably felt that its shares were overvalued and that tough times were ahead. Both KO and GTW were right, and neither company split its shares.

With that said, I don't expect a JNJ stock split within the next year. Two years from now, however, might be a different story. :)

Always Long,
Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.